NAB's problems are at home

While all the emphasis is on the NAB's UK situation, buried deep in the NAB profit announcements are a number of serious Australian problems facing the bank. The first is the fact that it is losing market share in key parts of its business franchise at an alarming rate.

Secondly banking is not getting the flow through of benefits from owning the MLC wealth management operation. New CEO Andrew Thorburn needs to make that work, but it will not be easy. All his predecessors have failed. In housing, although the NAB is edging up market share, it is all coming via brokers which means it's branch network is being underutilised.

And finally the really big changeovers from the NAB's investment in a completely new banking system, NextGen, do not take place until after 2017. That could be even 2019 which means the bank will have been working on this system for a decade. The CBA already has its systems up and running which gives the CBA a huge advantage over the NAB (and the other two big banks). The NAB looks like it is too far into the new system to pull back, but it's a headache that will dominate Andrew Thorburn's reign at the top of the NAB.

In the KGB interview with Andrew Thorburn I started by asking about the market share loss in smaller businesses, where two years ago the NAB had just under 30 per cent of lending to operations with turnover of between $1 million and $5 million. Now it's under 25 per cent.

This area of lending is NAB's meat and potatoes. Thorburn recognises he has a problem, but points out the bank is doing well in other parts of its business franchise. For instance, he plans to put more bankers on the road.

His problem is that the ANZ and the other banks are really targeting NAB customers and often taking more risk than the NAB is prepared to take.

In wealth management Thorburn's predecessors have not spent enough time on MLC, and even allowed it to bank with Westpac until a year or so ago.

The MLC is now under the wing of one of NAB's top executives, Andrew Hagger, and he not only stopped MLC from banking with Wespac but is revamping the operation and making it work much closer to the bank.

Thorburn explains that there is an MLC capital problem. What happens to MLC in the next year or so will depend on how successful Hagger is in revamping the operation and generating greater returns in segments such as life.